Risk-reward ratio compares the loss planned at a stop with the profit planned at one or more targets. R-multiples turn the same plan into a common unit: 1R is the initial amount at risk, so a $200 profit on $100 of initial risk is +2R. Both measures are useful only when the stop, targets, position size, fees, and expected execution are realistic.
Define 1R first, then measure every outcome against it
Choose a valid entry, stop, and target. The distance to the stop defines risk; the distance to the target defines potential reward. If the trade risks $100 to seek $200, Calcoring shows risk to reward as 1:2 and the planned target as +2R.
- Risk comes from the planned loss at the stop, not from the full position notional.
- R-multiples let you compare trades with different account sizes and position values.
- A high planned R does not guarantee profit; target probability, costs, and execution still matter.
- 1R
- The initial dollar risk defined before entering the trade.
- Risk-reward
- The planned loss compared with the planned profit.
- Expectancy
- The average modeled result per trade across wins and losses.
Start by checking which side of the ratio comes first
Trading platforms and educators do not always write the ratio in the same order. Risk-to-reward writes loss first: risking $100 to seek $200 is 1:2. Reward-to-risk writes potential profit first, so the same setup is 2:1. The trade has not changed—only the notation has.
Calcoring uses risk:reward in the displayed ratio and also shows the target as an R-multiple. A displayed 1:2 ratio therefore means the planned reward is two times the planned risk, or +2R before costs.
Always read the labels instead of assuming that a larger first number is better. When sharing a setup, write the convention explicitly or include the R-multiple.
| Notation | $100 risk / $200 reward | Meaning |
|---|---|---|
| Risk:reward | 1:2 | Two dollars of planned reward per dollar at risk |
| Reward:risk | 2:1 | The same trade with reward written first |
| R-multiple | +2R | Planned profit is twice initial risk |
What 1R and an R-multiple actually measure
1R is the initial amount you expect to lose if the trade exits at the planned stop. It can describe risk per unit or the total position risk. For performance tracking, total initial risk is usually the more useful denominator.
An R-multiple divides an outcome by that initial risk. A $250 gain on $100 initial risk is +2.5R. A $50 loss is −0.5R. A $130 loss is −1.3R, which can happen when slippage, fees, a gap, or a broken exit rule makes the realized loss larger than planned.
R is not the same as the percentage of the account at risk. If 1R equals 1% of account equity, a +2R result equals roughly +2% before compounding and other open-position effects. Another trader can define 1R as 0.5% and still record the same +2R trade.
Loss per unit at stop × Position quantityRealized net PnL ÷ Initial total riskPlanned net reward ÷ Planned net riskCalculate the ratio from entry, stop, target, and costs
For a long, price risk runs from entry down to the stop and reward runs from entry up to the target. For a short, both directions reverse. Absolute price distances make the basic formula easier to read, but the order side must still be valid: a long stop belongs below entry and a short stop above it.
The gross ratio ignores trading costs. A practical net ratio should reserve entry and stop fees inside the risk, subtract target closing fees from reward, and use an adverse stop fill when slippage is expected. Funding, spread, taxes, and liquidation require separate assumptions when they apply.
|Entry price − Stop price||Target price − Entry price|Price reward ÷ Price riskNet target profit ÷ Net stop lossWeight multiple take-profit targets honestly
If a trade scales out at several targets, the farthest target is not the reward for the whole position. Multiply each target result by the percentage closed there, then add those contributions. All allocations should total 100% unless the remaining position is modeled separately.
For example, closing 50% at +1R, 30% at +2R, and 20% at +3.5R produces 1.8R of gross weighted reward—not 3.5R. Fees at each exit reduce the net result, and moving the stop after the first target creates a different loss path that should be recalculated.
Σ (Target R × Target allocation)Target 1 % + Target 2 % + … = 100%| Exit | Allocation | Target R | Contribution |
|---|---|---|---|
| Target 1 | 50% | +1R | +0.50R |
| Target 2 | 30% | +2R | +0.60R |
| Target 3 | 20% | +3.5R | +0.70R |
| Weighted plan | 100% | — | +1.80R |
Connect R to break-even win rate and expectancy
Risk-reward describes the size of a modeled win relative to a modeled loss; it does not describe how often either outcome occurs. A strategy with larger winners can tolerate a lower win rate, while a strategy with small winners needs a higher one.
If the average loss is exactly 1R and the average win is 2R, the simplified break-even win rate before costs is 33.3%. If average losses exceed 1R or costs reduce winners, the practical break-even rate is higher.
Expectancy combines frequency and size. At a 40% win rate, an average +1.8R win, and an average −1R loss, expectancy is +0.12R per trade before additional costs. This is a long-run sample estimate, not a prediction for the next trade.
1 ÷ (1 + Average winning R)Average loss R ÷ (Average win R + Average loss R)(Win rate × Average win R) − (Loss rate × Average loss R)Worked example: BTC long with three targets
Assume a $10,000 account with a 1% risk budget, a BTC long entry at $68,000, and a stop at $66,000. The targets are $70,000 for 50% of the position, $72,000 for 30%, and $75,000 for 20%.
Before fees and slippage, price risk is $2,000 per BTC and weighted price reward is $3,600 per BTC. The setup is therefore 1:1.8, and the gross position size that fits $100 of risk is 0.05 BTC. A cost-aware calculator will reduce quantity and net R to reserve room for execution costs.
$10,000 account · 1% risk · weighted exits
The ratio evaluates the exit plan; the account risk budget determines how much BTC can be held.
Common mistakes when using risk-reward
The ratio is a planning and comparison tool. It becomes misleading when the inputs are chosen to manufacture an attractive number instead of describing an executable trade.
- Forcing every setup to 1:2 by moving the target beyond a realistic market level.
- Tightening the stop only to create a larger R while leaving it inside normal volatility.
- Treating the farthest take-profit as the exit for the entire position.
- Ignoring entry fees, exit fees, slippage, spread, and funding.
- Assuming every planned −1R loss will realize at exactly −1R.
- Using a small or mixed sample to estimate win rate and expectancy.
- Increasing leverage because the displayed ratio looks favorable.
Crypto Risk-Reward Calculator
Calculate net risk, weighted take-profit reward, R-multiple, break-even win rate, expectancy, position size, and margin for a long or short plan.
Frequently asked questions
Is 1:2 a good risk-reward ratio?
It can be useful, but it is not automatically good. The target must be realistic, and the strategy must reach it often enough after fees and slippage.
What is the difference between 2R and 2%?
2R is two times the initial risk. It equals 2% of the account only when 1R was defined as exactly 1% of account equity.
Can a strategy be profitable with a low win rate?
Yes, if average winners are sufficiently larger than average losers after costs. Expectancy, sample size, and loss control matter more than win rate alone.
Should I calculate gross or net R?
Use gross R to understand the price geometry and net R for planning. Net R should include the costs and adverse execution assumptions that are relevant to the trade.
Does moving a stop to break-even change the R plan?
Yes. It changes the distribution of possible losses and may change later position management. Recalculate the scenario instead of keeping the original ratio unchanged.
Can actual loss be worse than −1R?
Yes. Slippage, gaps, fees, liquidation, outages, and failure to follow the exit can all produce a loss larger than the initial plan.
Definitions, market-data methods, and exchange rules can change. These primary references were used to verify the concepts on this page.
Educational information only. Markets, costs, and exchange rules vary; verify the assumptions before investing or trading.